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instances: Joshua Sandman in 1992 and 1994, Jacob Pinson in 1992
and 1994, David Deitsch in 1994, Mordecai Deitsch in 1994, and
Joseph Deitsch in 1994. B. Mayer Zeiler reported his share as
nonpassive income from “trade or business--material
participation” in both 1993 and 1994, and as self-employment
earnings in 1994.
With the exception of B. Mayer Zeiler, all partners included
their distributive shares of DPP’s gross income as part of their
foreign source income for the 1991, 1993, and 1994 years. They
typically categorized this income as “General limitation income”
for purposes of the Forms 1116, Foreign Tax Credit, filed with
their returns. For 1993, however, Mordecai Deitsch and Jacob
Pinson categorized the amounts as “Passive income”. David
Deitsch followed the practice of deeming the payments foreign
source income for 1992 as well, while the other partners placed
their 1992 distributive shares among their U.S. source income.
FIL, on its financial statements and tax returns for 1991
through 1994, reported the payments to DPC and DPP as “selling
expenses”. FIL’s financial statements explain the payments in
the following language: “The Company paid the sum of * * *
[amount in New Israeli Shekels] to an affiliated company in
respect of sales commission and marketing and storage expenses”,
or “The Company paid the sum of * * * [amount in New Israeli
Shekels] to an affiliated company in respect of sales and
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